The circular-flow diagram shows how:

Question

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The circular-flow diagram illustrates the flow of money, goods and services, and factors of production through the economy. This includes the interaction between households and firms, as households supply factors of production (such as labor) to firms in exchange for income, which is then spent on goods and services produced by firms. In turn, firms use that income to pay for the factors of production needed to produce more goods and services, and the cycle continues.

The Circular-Flow Diagram Shows How